I'm a San Francisco Bay Area-based independent journalist specializing in energy and the environment, with a focus on energy and climate policy. My work has appeared at Yale Environment 360, the Guardian, MotherJones.com, Smithsonian.com, GreenBiz.com, Chinadialogue, and the Christian Science Monitor, among others. I've reported from France, Germany, Switzerland, and Denmark. For the 14 months leading up to COP15, I reported from Copenhagen for Monday Morning and the Copenhagen Climate Council. Follow me on Twitter at @JustinGerdes and Circle me at Google+. Send comments or pitches to: justingerdes [at] gmail.com

Solar Power More Competitive Than Decision-Makers Or Consumers Realize

Are the decision-makers entrusted with determining the future of energy infrastructure operating under an outdated understanding of the cost-competitiveness of solar power? In many cases, the answer is yes, according to a paper released last week by Bloomberg New Energy Finance (BNEF).

In “Reconsidering the Economics of Photovoltaic Power,” (PDF) BNEF CEO Michael Liebreich and nine collaborators document the precipitous decline in the price of solar power since 2009. “Average PV module prices have fallen by nearly 75% in the past three years,” they write, “to the point where solar power is now competitive with daytime retail power prices in a number of countries.”

Those facts so quickly upended what had been conventional wisdom (i.e., solar power is prohibitively expensive) that the new economics of solar power apparently caught decision-makers flat-footed. Here are the authors’ conclusions:

• The shift in prices of solar technology carries major implications for policy and investment decision-makers, especially when it comes to the choice of generating technology and the design of tariff, fiscal and other support policies. • Many observers and decision-makers have yet to catch upwith the improvements in the economics of solar power that have resulted from recent PV technology cost and price reductions. • Recent reductions in PV prices are likely to be sustainable. While overcapacity has caused severe pain for manufacturers, the price falls are primarily a reflection of reductions in manufacturing costs, not solely a reflection of stock liquidation and other short-run factors. • Commonly used estimates for PV power’s competitiveness – including the concept of “grid parity” – are often misleading, given the complex realities of the electricity system. [emphasis in the above mine]

The aim of the paper, the authors say, is to “inform policy-makers, utility decision-makers, investors and advisory services, in particular in high-growth developing countries, as they weigh the suite of power generation options available to them.” That understated language masks a deadly serious message, with the authors’ words practically shouting from the page: We’re trying to help you prevent the conventional energy infrastructure lock-in that will tip runaway climate change.

Despite the forces arrayed against it – its perceived high cost, the lack of a price on carbon in much of the world, and concerted efforts by cosseted fossil-fuel incumbents to stifle its rise – solar power is booming. “Large drops in solar module prices have helped spur record levels of deployment, which increased 54 percent over the previous year to 28.7 GW in 2011. This is ten times the new build level of 2007,” the paper finds.

A new paper from Bloomberg New Energy Finance argues that solar power is much closer to competitiveness than many policymakers and commentators realize. Credit: DOE/NREL 13739/Arizona Public Service

According to BNEF, the levelized cost of electricity (the cost distributed over a project’s lifetime) for conventional silicon PV declined by nearly 50% from an average of $0.32/kWh in early 2009 to $0.17/kWh in early 2012; thin-film PV dropped from $0.23/kWh to $0.16/kWh over the same period. As of the first quarter of 2012, BNEF pegs the levelized cost range at $0.11/kWh to $0.25/kWh. Residential customers in the United States pay an average retail price for electricity of $0.115 cents/kWh.

The authors contend that if decision-makers understood the new economics of solar, it would hasten the deployment of PV in existing and new markets. “Despite the substantial drop in PV costs,” they write, “many commentators continue to note that PV-generated power is prohibitively expensive unless heavily supported by subsidies or enhanced prices. Outdated numbers are still widely disemminated to governments, regulators and investors.”

Outdated information has led not just to poorly designed and overly generous feed-in tariff (FiT) schemes but to missed opportunities. “If PV power is perceived to be too costly,” write the authors, “governments are less likely to take on the financial burden. This was the case in China in 2010, where the anticipated national PV FiT was dropped because solar PV costs were deemed too high.”

Homeowners overestimate cost of installing solar

If policymakers have not fully grasped the new economics of solar, it should come as no surprise that homeowners are similarly unaware. A Harris Interactive survey released last month found that 97% of homeowners polled overestimated the cost of installing solar; just 3% of respondents knew that the upfront cost to install solar could be less than $1,000, and, in some cases, nothing at all.

To be fair, the survey was self-serving; it was commissioned by California-based solar installer Sunrun, which specializes in little- or no-money-down solar leasing. (The survey was basically an advertisement for Sunrun’s business model.) No matter. Gone are the days when homeowners determined to install solar had to pay $20,000, or considerably more, upfront to buy the panels outright. Forty percent of the Sunrun survey respondents still thought this to be the only option; meanwhile, nearly 8 in 10 said they would install solar if cost were not a factor.

The rapidly falling price of solar panels (combined with state and federal subsidies) has made viable the business model of Sunrun and competitors like SolarCity and Sungevity. The popularity of solar leasing (it now accounts for 75% of the residential solar market in California and more than 80% in Massachusetts) suggests that Americans wanting to switch to clean energy and hedge against rising electricity prices will increasingly choose to install solar.

It’s a shame that bad or incomplete information is holding back the growth of solar power. Those in a position to reach decision-makers and consumers, journalists like myself included, must ensure that the improved economics of solar power becomes the new conventional wisdom.

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Michael, Quite the opposite, the shares of solar panel companies are low precisely BECAUSE solar panel prices have dropped so dramatically as the author stated… thus decreasing the cost of the energy they generate… bad for them, great for installers and consumers. In Texas, we have no state or utility rebates, and we have low retail electric rates due to a deregulated market, and abundant natural gas. So basically it’s mono y mono, meaning we have to be VERY aggressive with our installation costs to compete with average retail electric rates. Currently, we’re installing typical residential roof mounts that have a levelized cost of energy of $0.10 kWh… which may currently be about the average of $0.085, but customers recognize these rates will be going up, and are choosing to ‘lock-in’ their rate for the next 20-30 years or more. In Texas, our typical customer is no ‘tree-huger’, its a financial planning decision based on return and the security of that return…. and return is now very compelling. Cheers!

Sorry Michael you’re the uninformed one. This article is talking about PV solar power not solar thermal. Many of the large solar plants being built in the Mojave desert in California have switched to PV in recent months and years instead of solar thermal because the price has dropped so much. You should check into the large scale plants that are going up in California, Nevada, and Arizona. If even half of the plants succeed in opening we’re talking 2-3 gigawatts of new renewable electricity in California. That’s a huge amount. Next time dig a little deeper.

Having done the controls for many solar tracking systems, I am looking 20-30 years to the future for what happens when the solar panels no longer are at the end of their life and no longer profitable in producing electricity. How and where are we going to dispose of these systems? I don’t see this solution on the horizon nor do I see it included in the upfront costs of solar systems.

Bill, are health care and environmental costs included in the up-front cost of coal? Of course not, otherwise solar and other renewable power generation sources would have reached grid parity long before now… I’d rather take my chances that we’ll figure out a way to recycle solar cells, than choose the certainty of further harm from fossil-fueled emissions.

Also, I didn’t realize, but First Solar sells their modules ‘prefunded’… First Solar’s industry-leading, prefunded module and recycling program, under which the company will collect and recycle its modules at no additional charge.

Thanks for your comment, Bill. You are right to point out that policymakers need to ensure proper recycling of solar modules and responsible de-commissioning of solar farms. But let me make a couple of points. First, as the authors of the BNEF paper point out, that 20- to 30-year life of PV modules you cite is likely very conservative. From the paper: “While PV modules are generally warranted for 25 or more years (Zweibel, 2010), research suggests that a 40 year lifetime has been demonstrated and that 50 years may be within reach with today’s crystalline technology (IEA, 2010).” Indeed, I often read about first-generations PV panels from the 1970s still operating as expected. Second, the costs incurred to recycle PV panels should be factored into the lifetime cost of a plant. But let’s keep those costs in perspective relative to competing forms of electricity generation. I’m more much comfortable grappling with how to recycling PV modules and return the land that had hosted a PV farm to productive use than I am in doing the same for a nuclear power plant.

You have missed the point. The real reason that solar should never be used as a source of energy for generating electrical energy has nothing to do with the cost of photovoltaics or any of the other things that presently make solar based electric energy uneconomical.

The fact is, solar (and wind too) is a very poor choice for an energy source. There is one thing that differentiates solar and wind from the other energy sources used to generate electricity: neither solar nor wind energy can ever be controllable. The truth is solar and wind routinely go from 100% to 0% and everywhere in between and the generating plant operators can do absolutely nothing about that. That means that you must have sufficient generation capacity using controllable sources (fossil, nuclear, and hydro) to take care of the entire system load and continually shift up and down in output to compensate for the uncontrolled changes in the output of solar and wind facilities.

This continual compensational shifting of generation facilities output also contributes to system instability much more than the changing of the electrical load. At this time, it isn’t much of a problem because solar and wind contribute so little, but if solar and wind capacity was contributing, say, 30% or 50% of the electric power, the grid would surely be much less stable and we could expect brownouts and blackouts with considerably greater frequency.

There are quite a few other reasons that solar and wind are bad choices, but even if we could eliminate all those reasons (like making the cost of photovoltaics manufacture and installation negligible), the reasons that I have cited here are more than enough to preclude their use. So, in my mind, having solar and wind electric power generation is a feel good thing, only. And you don’t design systems based on “it feels good.”